best isas

So,
having looked briefly of the history of the isa, and when it was introduced
to the market, how do we go about finding the best isa for us?
First we need
to understand what an isa is, the various types available, and what we are
actually investing in when we put our money into the isa itself. I am always
surprised whenever I ask people to explain what they think an isa is, and the
range of answers I receive - I won't detail them all here but they vary from
odd, to frankly bizarre!! So let me try to explain what this product is, and
why I feel you should consider using it as part of your personal tax
planning, and how we find the best isa on the market.

best isa - what is an isa ?

An ISA is an Individual Savings Account, which allows you as an
individual, to save up to £7,000 per year free of tax. But beware -
are these really tax free ? - the answer of course is no, as the government
always likes to collect on death!!! - more on this later.

An ISA is not an investment in itself, but is effectively a wrapper in
which the investment is held. Now you will often hear financial advisors
refer to a 'tax wrapper' for various financial products, which also include
ISAs. Again in simple terms this is purely jargon, and if you simply think
of it as a sweet wrapper, then this is all it is - an outer wrapping (
wrapping paper if you like ) in which you can enclose tax free sums rather
than presents or chocolates.

In many ways the
title (ISA) describes
exactly what the product is, but that I'm afraid is where the simplicity ends!! As we saw earlier, governments of both persuasions have
generally
been keen to encourage the public to save, although one could argue that if
they were genuine, then the opportunities for tax saving could be
significantly increased - however I suppose we have to be grateful for small
mercies and make the most of any opportunities available.

The
original TESSAs and PEPs allowed for a maximum of £10,800 to be invested
tax free per year, so the rather meagre allowance of £7,000 for an ISA introduced by
Gordon Brown was seen as a negative step, and certainly not one designed to
encourage tax free saving!! In true Gordon Brown style the rules governing
the product were complex and unwieldy, and many advisors have been surprised
that the products have survived for so long. Part of the reason was the
stock market boom of the late 90's fuelled by the technology sector in
particular. Sadly many investors piled into the market on the back of this
boom, only to watch with increasing alarm as the stock market bubble burst,
followed by the tragedy of 9/11. Investment in stock market isas has
never again reached these levels, as many investors became disillusioned
with both stock market performance and savings in general, preferring to
ride on a wave of cheap money and high borrowing.

What is particularly shocking for me as a trader and investor was
recently revealed in an FSA report. Following a survey it found that 40% of
people who own an equity ISA had no idea that the value of the ISA
fluctuated as the stock market moved up and down. What was even more
appalling was that 15% of people holding a cash isa thought it's value
did
change with stock market fluctuations. This level of knowledge is
particularly worrying, and if you would like to read the complete report I
have attached a link here -
best isa.
Alternatively, if you would like further details on the stock market and how
it works please just click the following link to another of my sites
which explains this in detail -
how
the stock market works

Now as I write there are currently two basic forms of ISA, the maxi isa, and the
mini isa, but just to complicate things further the current government has
decided to change these as
of the 6th April 2008. These will now be replaced with two isas namely a 'stocks and shares' isa, and
a 'cash' isa. Let's look at the Maxi and Mini isas first, and then take a
look at the new isas being introduced shortly which I hope will help you to
choose the best isa for your portfolio.